Good Faith Limits on a Purchaser’s Completion Discretion

The Dispute

A couple building a new house agreed to sell it to a purchaser once construction was finished, with a completion date several months out. On the completion date the purchaser refused to close, saying the sellers had not proven the house was ready. The sellers sold the house to someone else instead, at a lower price, and sued for the difference.

The Parties’ Positions

The sellers argued the completion clause could not turn on the purchaser’s subjective view of whether the house was finished, an interpretation they said would not match what the parties understood they were contracting for. They pointed to the evidence available to her by the completion date. It included a provisional occupancy document the city had issued the day before, photographs and video of the finished house, and a completed appraisal, any of which would have satisfied a reasonable buyer that construction was complete.

The purchaser’s position was that the clause required only that the evidence satisfy her personally, at her own option, and that this was its plain meaning. Without the unconditional occupancy certificate the clause named, she maintained, she was free to treat the contract as voidable, and her counsel so advised the sellers in writing before completion. She testified she was not satisfied by the walkthrough or the sellers’ other evidence. She said the sellers had not explained why the city rejected the inspection the day before, and without that explanation she could not assess what she had been shown.

The Court’s Decision

The court held the clause did not give the purchaser unrestricted personal discretion. A separate provision in the same contract, an option to extend completion if the house was not ready, expressly gave the purchaser “sole discretion” over that decision; the completion clause used no such words. Applying the framework in Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, the court found the discretion had to connect to its purpose: letting the purchaser confirm construction was finished through evidence other than a certificate, when a certificate was unavailable.

The court found the purchaser had not exercised her discretion for that purpose. She had received the occupancy document, photographs, a completed appraisal, and reports from people who inspected the property for her, any of which a reasonable buyer could have accepted as evidence construction was finished. Her correspondence before completion mentioned only the missing certificate. The court found she had already decided not to complete before the walkthrough, was solely focused on the certificate, and wrongly believed her discretion was completely subjective. That exercise of discretion was unconnected to its purpose, and therefore unreasonable and contrary to the duty of good faith.

The court held the sellers were entitled to damages equal to the difference between the contract price and the lower resale price. It also awarded foreseeable out-of-pocket costs the breach caused, including additional mortgage interest, strata fees, insurance, utilities, resale commission, and renewal fees for the statutory home warranty and builder’s licence. After crediting the purchaser’s deposit, damages were ordered in the mid six figures, with costs reserved for written submissions.

Key Lessons for Buyers and Sellers of Homes Under Construction

• State plainly whether a completion condition gives a party sole discretion or requires it to be exercised reasonably. Where one clause in a contract uses “sole discretion” and a comparable clause does not, a court will treat the omission as intentional and require good faith in its exercise.
• Before invoking a completion condition to withhold closing, or relying on it to prove completion, weigh all the evidence available instead of one document alone. Focusing only on a missing certificate, when other credible evidence exists, risks a finding the discretion was exercised for a purpose the contract never granted.
• Draft a completion condition around a single governing standard, instead of combining a specific document with an open-ended “satisfactory to” phrase. Naming both an occupancy certificate and undefined “other evidence” invites a dispute over which standard controls once the certificate is unavailable.
• Preserve records of every carrying and resale cost incurred after a breach, whichever side incurs them. A court will award reasonably foreseeable expenses, such as financing, strata, insurance, and resale commission, beyond the price difference on resale.

The outcome turned on the wording of this contract and the evidence available to the purchaser by the completion date. A similar dispute may resolve differently.

ATAC LAW advises buyers and sellers on real estate purchase and sale contracts and the disputes that arise when a party refuses to complete, including civil and commercial litigation over completion and discretionary clauses.

This matter was conducted by Dan H. Griffith, a partner at ATAC LAW, who acted for the purchaser at trial.